Earth economics studies the economy of our planet from the perspective of an autarkic system (a “closed economy”). It ignores the constituent national and regional parts of the planet economy and focuses on the whole. The book respects the heritages of IS/LM (Keynes) and neoclassical growth (Solow) not out of economic respect but because these tools are very useful in understanding the crisis and the policy response to that crisis.

More on Eartheconomics

Tuesday, November 29, 2016

Data sources are regularly updated. Users typically assume that this means that new, more recent data are added and that errors are corrected. Newer data are better. But are they? And what are the implications for replication? This guest blog of the replication network points out challenges and potential benefits of the existence of different data versions.

Variations between the different vintages of a data set are not necessarily problematic. Variations provide insight in the measurement error in the data source. A better understanding of measurement error may be helpful for establishing why a replication fails or succeeds. Moreover, performing replications over many different vintages can support the robustness of the original study’s findings. If all the data versions arrive at the same conclusion, this strengthens confidence in the replication’s verdict on the original study (be it positive or negative). It is not the difference of the data version that matters, but the similarity of findings across different data versions. As a result, different data versions can be turned into an important asset for replication research.

We
examine sources of biased terror perceptions. In particular, we investigate how
international experts of the IFO World Economic Survey assess the effect of
terror on the world economy and the economy of their own country. The results
show that respondents from terror stricken countries have more favorable views
on the effect of terror on the word economy (but not on their own countries).
Male respondents and those from democratic and richer countries are likewise
more optimistic.

Inflation
co-moves across countries and several papers have shown that lags of this
common inflation can help to forecast country inflation. This paper constructs
forecasts of common (or 'global') inflation using survey forecasts of country
inflation. These forecasts of global inflation have predictive power for global
inflation at a medium horizon (12 months) but not at a longer horizon. Global
inflation forecasts, and forecast errors, are correlated with survey forecasts
and errors of oil and food prices, and global GDP growth, but not financial
variables. For some countries, forecasts of global inflation improve the
accuracy of forecasting regressions that include survey forecasts of country
inflation. In-sample fit and out-of-sample forecasting exercises suggest that
forecasts of global inflation generally contain more information for
forecasting country inflation than do lags of global inflation. However, for
most countries, lagged or forecast global inflation does not improve the
accuracy of survey forecasts of country inflation. Whatever information global
inflation may include about country inflation, for most countries it seems that
survey forecasts of country inflation have historically already incorporated
that information.

Wednesday, October 12, 2016

One item for heated debate amongst economists is the so-called secular stagnation. The economics tribe seems to agree on the fact that world growth is at a lower growth trajectory and that a substantial output.
Figure 1 provides some data for Earth's per capita income in constant prices. The figure seems to support the concensus view. A simple linear trend has been added to recent data up to but not including the great recession. The drop in output due to the financial crisis and the departure from trend are evident: Earth is in a serious depression.
Figure 2, however, provides an alternative longer run perspective that questions this concensus of economists.

Fig. 2 World income per headRegression based on 1960-2007 data

In Figure 2 we use the same data (source: World Development Indicators), but extend the period of observation (1960 is earliest reported number for world per capita GDP in the WDI). Now the picture changes quite dramatically. Yes the growth rate of per capita income has slowed down, but it is still above long term trend. Clearly the consensus view is blurred by the perspective of the recent past (the decade before the Great Recession) and by the fact that the advanced economies experienced a bad time.

Friday, September 30, 2016

The 2008/9 financial crisis led to a hick-up in public debt to GPP ratio's, but for long IMF predicted that this was not very problematic as the forecasts of the IMF predicted a return to the year 2000 levels as illustrated in the Figure at the top left for the IMF's April World Economic Outlook published in 2012, 2013 and 2014. Actually, this has always been the IMF view since it started to publish world public debt to GPP ratio's.
Since 2014 this picture changed fundamentally, but not in the sense that the IMF is still predicting that the debt is still sustainable at the. end of the forecasting period as it is on a downward trend. The difference is that each recent update shows that this downward trajectory is shifting upward, demonstrating that each and every IMF forecast in the last five years has been too optimistic. This implies that serious questions arise about the sustainability of public debt at the world level.
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Friday, July 29, 2016

Summary
Intermediate macroeconomics textbooks (Blanchard, 2003, for example) have started to expand their
treatment of growth and integrate it a bit more into the model, if only by putting the chapter in the middle and not at
the end. Jones and Burda and Wyploz even write their books backwards from what it would have been in the 1960s:
economic growth, then Aggregate-Supply-Aggregate-Demand, then the Keynesian model, then monetary theory,
then the ISLM model, and so forth.
The economy is, however, embedded in the ecological system, so our models of the economy need to be
embedded in models of the ecological system as well. Before the chapter on economic growth, there needs to be one
on the environment in which economic activity takes place. The limits to growth, both from depleting resources and
from carbon emissions, should be addressed early. To the circular flow, for example, there need to be added a source
and a sink; the flow comes from somewhere and goes to somewhere.
I attempt to outline such a chapter. I define a variable YG, which depends not only on the usual factors of
production but especially on the quantity of depletable resources used and is related to the quantity of emissions in
the environment from the past. There is a level YG* beyond which the environment of the planet is irreversibly
damaged. Note that Mother Nature does not care about prices or reductions in per capita GDP.
I also indicate how this chapter affects the rest of a typical macroeconomics textbook. Jonathan Harris’s
classification of consumption and other variables into non-durable, human-capital intensive, energy-intensive, etc.,
would appear in this chapter and in the ones on measurement and the components of aggregate demand. But for the
moment it should be enough to put them in this new chapter. That way it can be slipped into the typical
macroeconomics course without requiring very much revision of the instructor’s lecture notes.
This chapter should be compatible with whatever approach is used in the textbook: New Classical, New
Keynesian, Post-Keynesian, or radical, though perhaps with a few revisions here and there. For example, a New
Classical model would have a vertical Aggregate Supply curve, a New Keynesian model would use a partly
horizontal one, and a radical textbook would omit the part on Aggregate Supply and Aggregate Demand.
Ideally we would rewrite macroeconomics textbooks completely. In the meantime, we can at least
supplement them in a useful way

This
paper estimates fossil fuel subsidies and the economic and environmental
benefits from reforming them, focusing mostly on a broad notion of subsidies
arising when consumer prices are below supply costs plus environmental costs
and general consumption taxes. Subsidies are $4.9 trillion worldwide in 2013
and $5.3 trillion in 2015 (6.5 percent of global GDP in both years).
Undercharging for global warming accounts for 22 percent of the subsidy in
2013, air pollution 46 percent, broader vehicle externalities 13 percent,
supply costs 11 percent, and general consumer taxes 8 percent. China was the
biggest subsidizer in 2013 ($1.8 trillion), followed by the United States ($0.6
trillion), and Russia, the European Union, and India (each with about $0.3
trillion). Eliminating subsidies would have reduced carbon emissions in 2013 by
21 percent and fossil fuel air pollution deaths 55 percent, while raising
revenue of 4 percent, and social welfare by 2.2 percent, of global GDP.

Capital
flow and commodity cycles have long been connected with economic crises. Sparse
historical data, however, has made it difficult to connect their timing. We
date turning points in global capital flows and commodity prices across two
centuries and provide estimates from alternative data sources. We then document
a strong overlap between the ebb and flow of financial capital, the commodity
price super-cycle, and sovereign defaults since 1815. The results have
implications for today, as many emerging markets are facing a double bust in
capital inflows and commodity prices, making them vulnerable to crises.